Uncertainty in insurance underwriting historically has manifested in reduced limits, coverage constraints, and increased pricing. Our wish today is to encourage the committee to reduce some of the underwriting uncertainty with clarifying amendments to the bill, which will assist in stabilizing available capacity.
The example of strict liability in lieu of at-fault or negligence-based liability as outlined in proposed section 152.8 is a major change that could be problematic for underwriters. While we understand that strict liability is a feature of the new legislation, it is unclear in the bill which “involved” railways would be subject to strict liability as the term “involved” is not specifically described or defined in the bill, as you can see in proposed section 152.7. Underwriters in this market are likely to write multiple companies that could be “involved”, while not physically involved in the goods movement causing the loss.
Under the proposed strict liability wording, insurers might think they could be paying out far more limit than they might have paid under a fault-based regime. This change could create uncertainty and encourage insurers to pull back on capacity, protecting themselves from the unfamiliar. Similarly, the use of phrases like “any action or measures” and “all loss of non-use”, instead of something like “reasonably incurred”, all referred to in proposed section 153, leaves an underwriter with a sense of limitlessness, which could be met with a similar overreaction. It is possible that this uncertainty could severely limit the capacity available in the rail insurance market that is global.
Additionally, further clarity is required in describing that the minimum limit also acts as a per-accident cap on liability, as alluded to in proposed section 152.7. We feel that this will add to loss forecasting certainty for the underwriters. We also recommend clarifying the role of approved self-insurance as noted in proposed paragraph 92.1(b), as a potential substitute for third-party liability insurance. This feature adds flexibility to the railways’ ability to comply with the bill.
According to proposed section 94.2 of the bill, “The agency shall suspend or cancel a certificate of fitness” of a non-compliant railway. We would recommend substituting more flexible wording so that the agency might be able to make a decision that benefits all stakeholders. As an example, substituting the word “may” versus “shall” could allow for greater flexibility.
Another concern is that we can imagine that stacking limits under strict liability might actually discourage cooperation among the railways, especially if they suspect that direct cause of a loss could be the responsibility of a railway not covered by the act. The economy does depends on this inter-rail cooperation.